Welcome to Hong Kong! If ever there was a city which was
testimony to the powerful impact of trade on growth and
development, this is it.

Over the next several days you will witness a dizzying
array of activities as the 6,000 delegates, 2,000 NGO
representatives and nearly 4,000 journalists interact
and struggle to stay abreast of what is going-on. With
so many briefings underway and so much information to
absorb, sometimes we lose sight of the bigger picture.

We must remember that this meeting was never intended as
the finale of the Doha Development Agenda of global
trade negotiations. It was intended to be an important
stop along the road to completing the Round at end of
2006, and so it remains. We must remember as well that
though much remains to be done, what has already been
achieved is significant. The Doha Round is the most
complex and ambitious set of commercial negotiations
ever launched and the WTO takes its decisions on the
basis of consensus among its 149 Members.

WTO Members reached agreement in July 2004 on a
framework agreement which brings us roughly half way to
a final accord. We had sought to use this meeting as a
means of moving two-thirds of the way to a final accord
and while we may not achieve that at this Conference, we
will use this occasion to build a platform for the
negotiations next year.

We have very little time and a great deal of work to
accomplish. Early next year we need to complete the
template agreements, known as modalities, for trade in
agriculture and industrial products. We will need to
accelerate our services negotiations so that we can
conclude the Round with a critical mass of high quality
offers on the table in more than 100 sectors including
tourism, telecommunications, financial services and
express delivery.

We also need to move on negotiations to ensure greater
compatibility between WTO trade rules and multilateral
environmental agreements, reforming the organization's
dispute settlement system, improving and clarifying
rules on anti-dumping and subsidies — including those
fishing subsidies which threaten to deplete global fish
stocks — and drafting rules to reduce the red tape that
hinders the movement of goods across borders (trade
facilitation).

And in all these issues there is the development
dimension. This is the Doha Development Agenda and it is
worth repeating that we will not have a successful
conclusion to this Round without each one of the topics
delivering results for developing countries. I believe
that 70% of the gains to developing countries will flow
from greater market access opportunities and a reduction
of trade distortions to be agreed in the agriculture,
industrial goods and services negotiations. One clear
example of this is cotton — which is part of the
negotiations on agriculture — where Members have agreed
to address trade distortions ambitiously, expeditiously
and specifically. Additional gains will come from
specific provisions which would adjust WTO agreements to
allow special and differential treatment for developing
countries.

If we are to translate the results of the Round into
reality, many of our developing Members will need aid
for technical assistance and capacity building, for
enhancing supply side capacity, infrastructure
improvement, improving production efficiency and
training. This is why we need a substantial Aid for
Trade package as an essential complement to the results
of the Round.

Governments — all governments — are extremely keen to
have a deal. This is not just because of what they wish
to achieve at the end, but because they are very much
aware of what they have already done.

I hope that all Members will keep this is mind when they
arrive in Hong Kong so that we can negotiate to advance
the Doha Round closer to a conclusion by the end of
2006.

Finally, let me tell you that we will try to make your
life easier by keeping you regularly posted on events as
the Conference unfolds.

Let's keep our fingers crossed!

PASCAL LAMY
Director-General
World Trade Organization

Agriculture and industrial products: where we are and
what was done in the last round of trade talks — the
Uruguay Round (1994)

To illustrate the progress made since the Round was
launched in November 2001 one need only look at what is
on the table in key segments of the negotiations to see
the outlines of a deal which would well exceed the level
of ambition in the last round of negotiations, known as
the Uruguay Round, which concluded in 1994.

AGRICULTURE — Until the Uruguay Round,
international trade rules dealt with agriculture only in
the most marginal way. But as part of that agreement in
that Round, trading partners accepted to reduce export
subsidies (by a 36% cut in the quantity exported and a
21% cut in expenditure for developed countries while
developing countries agreed to reduce the quantity by
24% and expenditure by 14%). They also agreed to cut
trade distorting domestic support by 20% for developed
countries and by 13.3% for developing countries.
Finally, governments agreed to reduce tariffs by an
average of 36% for developed countries (with a minimum
cut of 15% for each tariff line) while developing
countries accepted average tariff cuts of 24% with a
minimum tariff cut of 10% for each line.

In July 2004 Members agreed, as part of the Doha Round
framework accord, to eliminate all forms of export
subsidies by a date certain. Governments agreed to cut
trade distorting domestic support by 20% from the first
day an agreement would be implemented — a figure
equal to the total cuts for the Uruguay Round.
Members have responded since July 2004 with a series of
offers which would further slash trade distorting
support, with various proposals offering cuts for the
largest subsidizers of between 60%-83%. Developing
countries would see their trade distorting support
reduced by a smaller amount. Much has been made of the
fact that these offers would be from the subsidy level
caps which were agreed in the Uruguay Round and that
many subsidizing Members currently spend well under
these caps. True enough, but looked at another way
bringing down the cap would greatly reduce budgetary
room for manoeuvre in the future. When you consider as
well that under current rules some governments could
raise their spending on trade distorting support by $25
billion annually and still be within their Uruguay Round
commitments, there is a significant downside risk to a
failed negotiation.

Furthermore, the July framework and subsequent offers
would mean that distorting subsidies for all
commodities would have to be reduced. Allowable
limits on other types of subsidies, for instance smaller
payments that have not counted towards the cap (de
minimis), would be reduced and other subsidies which had
never been capped, included production limiting support,
would be significantly reduced and capped.

On market access, the offers on the table indicate that
there is a good chance that we will go beyond what was
achieved in the Uruguay Round. For one thing, under the
agreed tiered formula, the highest tariffs will be
reduced by the largest amount. This compression effect
would sharply reduce tariff peaks and a process called
tariff escalation whereby products attract a higher
import duty at every stage in the value-added chain.
Moreover, the majority of offers on the table would
result in markedly deeper cuts in tariffs than we saw in
the Uruguay Round.

Some sceptics have noted that proposed cuts would come
from bound tariff levels and not from the levels that
are actually applied to imports. To some extent this is
true, though in the end we will see applied rates coming
down as well. This criticism misses the fundamental
point that a significant reduction in bound rates would
radically improve transparency and predictability in
trade because governments' ability to suddenly close the
market through WTO-consistent tariff hikes would be
curtailed. This sort of discipline has historically
served to underpin domestic reform in a great many
countries.

INDUSTRIAL TARIFFS — Since the creation in 1948
of the multilateral trading system and the WTO's
predecessor the General Agreement on Tariffs and Trade
average tariffs in the industrial world have fallen from
roughly 40% to less than 4%. Trade in manufactured
products constitutes about 70% of total world trade and
these tariff reductions have driven explosive trade
growth. Since 1948 trade has increased nearly 20 fold
with developing countries seeing their share of world
trade rising to 31%.

Different systems of tariff reduction have been used in
various trade rounds. In the Tokyo Round which concluded
in 1979, a “Swiss” formula was used, under which the
highest tariffs were reduced by the widest margin. In
the Kennedy Round, which ended in 1967, tariffs were cut
through a straight linear reduction. In the Uruguay
Round there were a mix of approaches utilized with the
objective being an overall average cut in tariffs of
one-third. This resulted in developed country tariffs
being reduced from a trade weighted average of 6.3% to
the current level of 3.8%. To calculate developing
country average tariffs is more difficult because a
large percentage of these tariffs were unbound and
variable. What is significant is that the percentage of
industrial product tariff lines that was bound increased
from 21% to 73%. A tariff binding is a ceiling level
above which a Member cannot apply a tariff. In other
words, it is the maximum tariff that may be applied by a
Member. However, such rates are not cast in stone. They
may be increased or withdrawn subject to compensation
being provided to the WTO Members affected by such
action. This binding locked in reforms, enhanced
transparency and predictability and thus contributed to
facilitating trade.

In the July framework WTO Members have agreed to cutting
tariffs in accordance with a formula. A formula approach
provides transparency (every Member will know how the
other will reduce its tariffs); efficiency (simpler
process than request/offer approach), equity (tariff
reduction depends on rules rather then “bargaining
power”); predictability (easy to foresee the results of
the negotiations). Although no consensus has been
reached on this point yet, a large number of Members
have embraced the Swiss formula with the use of two
coefficients, one for developing countries which would
result in smaller average cuts and one for developed
countries where the cuts would be larger in percentage
terms. There would also be flexibilities for developing
countries in which they could exempt a percentage of
tariff lines from the formula cuts. The compression
effect of this formula means that tariff peaks and
tariff escalation will be sharply reduced. This is
significant because while developed countries have
generally low tariffs, they often apply their highest
peaks and use tariff escalation on products of greatest
interest to developing countries such as textiles,
apparel and shoes.